Is College Education Overpriced?

Peter Thiel- co-founder of Paypal- garnered plenty of headlines within the past few weeks with some comments on higher education. He believes that the cost of college is a bad investment proposition for many. His comments were featured in an interview with Sarah Lacy on techcrunch.com. He brings up a couple of issues that have been circulating in my head for a while. Those two issues:

1. MIT does an admirable thing by offering almost all of their courses online for free through MITOpenCourseWare. This is an unbelievable resource for those who have the motivation and intellectual capacity to pursue this. So you can receive an MIT education for free or you can spend around $250k to obtain a degree from MIT.

One of the points Thiel brings up is if schools like Harvard, MIT and Stanford are such difference makers for people, why don't we franchise them? Why do these schools insist on elitism?

One of the beliefs that I have had about college in general is that the actual education component is worth very little. Any individual can receive a fantastic education by reading and watching videos on their academic discipline of choice. The true value of college is the relationships you form. The network is where the value is.

I spent around $40k for a business degree at Baylor University in the late 80s/early 90s. The cost of a Baylor education has probably quadrupled since then. For me, the $40k was money well spent. The network of relationships has been worth a large multiple of that figure. But would it have been worth the money if I wasn't a business major? I have my doubts. Would it have been worth $160k as a liberal arts major? Hard to imagine that it would have been.

2. How much of the rapid rise in college tuition prices in the last 20 years has been due to easy access to loans? There are plenty of students who graduate from college with over $100k in loans to repay. Costs tend to escalate when you are spending other people's money. Most people don't think about the consequences. Mark Perry had a blog post highlighting similar problems with healthcare costs. Fifty years ago, health care costs were distributed around 45% out of pocket and 55% to insurance; employers; or government agencies. Today those numbers are 10% out of pocket and 90% other people's money. And we wonder why costs have escalated out of control.

The average student debt was around $8,000 in 1990. That had tripled to over $24,000 in 2009. That figure is higher for students graduating from a private university. And has escalated to over $100k average for students graduating from medical school. Without the leverage in the system (easy access to loans), prices of education would fall. Just as they have for houses in the last 3 years as the availability of credit has tightened.

Put me in the camp of believing that college costs are artificially inflated. This could be potentially good news for those who have younger kids. The prevailing opinion today is that college costs will continue to escalate. Just as that same opinion existed about housing four years ago. If sanity returns to the financing of education debt, you'll probably see costs fall just like the real estate market in recent years.

Ashley Hodge

Natural Resources- Should One Load the Boat?

I enjoyed this interview with Bill Paul and Consuelo Mack. Bill Paul has been following the alternative energy sector for many years and had some fascinating opinions on the future of energy- specifically the potential revolution involving smart grids.

Cisco Systems put out a short four minute video explaining the smart grid.

Listening to this interview got me in a reflective mood. Many investment newsletters that I read today discuss the idea that we are in a natural resource boom that will last for the foreseeable future. You only have to listen to talk radio shows for a short period of time to hear commercials selling gold or precious metals with ominous warnings about the future of the US dollar and US economy.

I believe having natural resources as part of a diversified portfolio of investments has its place. There are some compelling arguments for owning these investments in a portfolio including:

1. The debt problems of mature economies- US, Europe, Japan- that may lead to temptations to devalue those currencies- US dollar; Euro; Yen. A devaluation of currency might lead to higher inflation and higher natural resource prices.

2. The growth of the emerging markets- China, India, Africa, South America, etc...-could produce a lot of consumers that are going to consume a lot of food, energy and the materials needed to build out infrastructure in those countries.

But I believe a healthy dose of skepticism and caution is warranted about prices of food, gold, silver and oil continuing to increase. There is a economics saying, "There is no cure for high prices like high prices." At some price, the incentives for alternatives and innovation kick in high gear. With enough incentives and revenue potential, innovation can happen quickly. And innovation can drive prices lower.

One of my favorite blogs to follow is Mark Perry's Carpe Diem blog. He had a recent post on how the cost of food as a percentage of disposable income has decreased dramatically over the last 80 years. You can find his support here.

John Hussman included this chart in a recent newsletter. The chart should make any student of history a bit nervous about "loading the boat" in natural resources right now. The story of history is progress. I like to refer to it as biblical progression. There will be cycles along the way.

But God has a plan that He is unfolding from creation to re-creation of the heavens and earth. But his stewardship mandate remains intact for humans to use the gifts and talents towards the ends of creating a better world as we eagerly hope for the day when the curse will be removed and progress will be unhindered by greed, decay and corruption- Romans 8:19-22.

As we await the complete fulfillment of this promise, we should heed the words of Sir John Templeton. The four most dangerous words in the English language are: "this time is different."

When Helping Hurts

Just finished a book recommended to me called When Helping Hurts by Steve Corbett & Brian Fikkert. They have a website that explores the ideas they share in this book.

I'll use some future blog posts to highlight some of my takeaways from this book. In general, the book is about poverty alleviation. Trillions of dollars have been spent on poverty aid and yet 40% of the world still lives on less than $2 per day.

Many Christians (myself included) have given to poverty alleviation programs or have invested thousands of dollars to go on short term mission trips without deeply considering the question: does it help?

This book tackles that question. We have seen evidence that government welfare creates a tough cycle to escape and an unhealthy dependency. Are we practicing a form of Christian welfare by giving money only to others without addressing deeper needs?

Many short term mission trips cost a church $25,000+. Is this money well spent? Before reading this book, I would have thought that the cost was worth it for a couple of reasons:

1. Lives and perspectives of those who go are changed and some decide to devote their lives to full-time missions as a result.

2. Those who go on short-term missions become generous givers to the cause of missions in the future.

However, the evidence documented in this book says different. For the most part, short term missions is a poor allocation of resources in alleviating poverty.

How do we define poverty? Those of us that have material comfort are likely to describe it as a lack of money. The poor describe poverty as shame; inferiority; powerlessness; humiliation; fear; depression; social isolation.

Poverty alleviation efforts often communicate the wrong message: that the poor are inferior and need our superiority for what we can give them. In reality, we each need something from the other. We that have resources are not ok. We trust in those resources instead of trusting in God. We need to learn from those who have less what it is like to depend on God for everything.

And those that are poor need from us help to break the cycle of poverty. Together God can fix us. Fikkert and Cobert define poverty alleviation as the ministry of reconciliation: moving people closer to glorifying God by living in right relationship with God, with self, with others, and with the rest of creation.

Looking forward to fleshing out more thoughts from this book- a thought provoking read.

For His Glory,

Ashley Hodge